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Faced with the likelihood of breaching its financial covenants, Citadel Broadcasting (CTDB) -- which syndicates such broadcasters as Don Imus (pictured) -- took the initiative Sunday and filed for bankruptcy. The Chapter 11 filing will let the radio broadcaster get out from underneath most of its $2.5 billion debt.Under a pre-arranged plan approved by more than 60% of Citadel's lenders, the company's creditors will end up with 90% of the reorganized company's equity. In return, they'll exchange $2.1 billion in loans for a more manageable $762.5 million.

%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Losing out big in the deal is Forstmann Little & Co. The New York-based private equity firm is currently Citadel's biggest stakeholder, with 28.7% of its equity. Forstmann had already written off its investment in Citadel, according to The Wall Street Journal, which included a $1.5 billion infusion in 2001.

Citadel owns 224 radio stations, including WABC in New York and WLS in Chicago. Among the programs it syndicates are Imus in the Morning and The Mark Levin Show. Just three years ago, it was still aggressively expanding, shouldering heavy debt to finance a $2.7 billion merger of its stations with Disney (DIS)-owned ABC Radio. That deal turned Citadel into the country's third-biggest radio operator, behind Clear Channel and CBS (CBS) Radio.

But then the bottom fell out of the radio-advertising market, and the ad economy in general. Citadel's ad revenue was down 14% in the third quarter. Overall radio spending is off an even steeper 19% in 2009, according to the consultancy BIA/Kelsey.

A covenant with its lenders requires Citadel to have $150 million in cash on hand by Jan. 15. As of Sunday, the company had only $24 million.